Bank of Commerce Holdings Announces Results for the First Quarter of 2017

Published on April 20, 2017

REDDING, Calif., April 20, 2017 (GLOBE NEWSWIRE) — Randall S. Eslick, President and Chief Executive Officer of Bank of Commerce Holdings (NASDAQ:BOCH) (the “Company”), a $1.1 billion asset bank holding company and parent company of Redding Bank of Commerce (the “Bank”), today announced financial results for the quarter ended March 31, 2017. Net income for the quarter ended March 31, 2017 was $2.3 million or $0.17 per share – diluted, compared with a net loss of $960 thousand or $0.07 per share – diluted for the same period of 2016.

Financial highlights for the first quarter of 2017 compared to the same quarter a year ago:

Net income of $2.3 million for the three months ended March 31, 2017 was an increase of $3.2 million (338%) from $960 thousand net loss recorded during the same period in the prior year. Net loss for the quarter ended March 31, 2016 included expenses totaling $2.8 million related to the acquisition of five Bank of America branches and the execution of our plans to reconfigure our balance sheet using liquidity provided by those branches.

Return on average assets improved to 0.80% for the first quarter of 2017 compared to (0.37)% for the same period in the prior year.

Return on average equity improved to 9.63% for the first quarter of 2017 compared to (4.23)% for the same period in the prior year.

Deposits at March 31, 2017 totaled $1.0 billion, an increase of $66.8 million (7%) since March 31, 2016. This growth was centered in core deposits in our Sacramento marketplace.

Gross loans at March 31, 2017 totaled $810.2 million, an increase of $86.0 million (12%) since March 31, 2016. Most of this growth occurred in our Sacramento marketplace and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

Tangible book value per common share was $6.97 at March 31, 2017 compared to $6.57 at March 31, 2016.

Financial highlights for the first quarter of 2017 compared to the prior quarter:

Net income of $2.3 million for the three months ended March 31, 2017 was a decrease of $45 thousand (8% annualized) from $2.3 million net income earned during the prior quarter. Net income for the three months ended March 31, 2017 included life insurance death benefit proceeds of $502 thousand and a $200 thousand provision for loan and lease losses.

Return on average assets was 0.80% for the first quarter of 2017 compared to 0.81% for the prior quarter.

Return on average equity decreased to 9.63% for the first quarter of 2017 compared to 9.69% for the prior quarter.

Deposits at March 31, 2017 totaled $1.0 billion, a decrease of $176 thousand (0.07% annualized) since December 31, 2016.

Gross loans at March 31, 2017 totaled $810.2 million, an increase of $6.0 million (3% annualized) since December 31, 2016.

Tangible book value per common share was $6.97 at March 31, 2017 compared to $6.83 at December 31, 2016.

Randall S. Eslick, President and CEO commented: “It is hard to believe that a full year has already passed since we acquired five new offices from Bank of America. During that time, the buildings have been remodeled and the new staff and customers have been fully integrated into the Redding Bank of Commerce family. Throughout the bank, deposits and loans have continued to increase handsomely which we anticipate will lead to increasing profitability. We applaud the hard work of our employees and acknowledge their accomplishments.”

Forward-Looking Statements

This quarterly press release includes forward-looking information, which is subject to the “safe harbor” created by the Securities Act of 1933, and Securities Act of 1934. These forward-looking statements (which involve our plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

Competitive pressure in the banking industry and changes in the regulatory environment

Changes in the interest rate environment and volatility of rate sensitive assets and liabilities

A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans

Credit quality deterioration which could cause an increase in the provision for loan and lease losses

Asset/Liability matching risks and liquidity risks

Changes in the securities markets

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and under the heading: “Risk Factors” and subsequent reports on Form 10-Q and current reports on Form 8-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation and specifically disclaims any obligation, to revise or publicly release the results of any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date the statements were made.

(2) The Company and the Bank continue to meet all capital adequacy requirements to which they are subject. The capital ratios for 2016 were impacted by increased average total assets, the addition of $1.8 million of core deposit intangible and $665 thousand of goodwill recorded in conjunction with the acquisition of five branches in March of 2016.

BALANCE SHEET OVERVIEW

As of March 31, 2017, the Company had total consolidated assets of $1.1 billion, gross loans of $810.2 million, allowance for loan and lease losses (“ALLL”) of $11.6 million, total deposits of $1.0 billion, and shareholders’ equity of $96.5 million.

TABLE 2

LOAN BALANCES BY TYPE – UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

% of

% of

Change

% of

2017

Total

2016

Total

Amount

%

2016

Total

Commercial

$

145,635

19

%

$

136,721

19

%

$

8,914

7

%

$

153,844

19

%

Real estate – construction and land development

46,228

6

27,554

4

18,674

68

%

57,771

7

Real estate – commercial non-owner occupied

305,802

38

247,840

34

57,962

23

%

287,455

36

Real estate – commercial owner occupied

164,166

20

154,484

21

9,682

6

%

151,516

19

Real estate – residential – ITIN

44,211

5

48,384

7

(4,173

)

(9

)

%

45,566

6

Real estate – residential – 1-4 family mortgage

19,710

2

16,746

2

2,964

18

%

20,425

3

Real estate – residential – equity lines

33,019

4

38,528

5

(5,509

)

(14

)

%

35,953

4

Consumer and other

51,423

6

53,986

7

(2,563

)

(5

)

%

51,681

6

Gross loans

810,194

100

%

724,243

99

%

85,951

12

%

804,211

100

%

Deferred fees and costs

1,446

985

461

1,324

Loans, net of deferred fees and costs

811,640

725,228

86,412

805,535

Allowance for loan and lease losses

(11,641

)

(11,495

)

(146

)

(11,544

)

Net loans

$

799,999

$

713,733

$

86,266

$

793,991

Average yield on loans during the quarter

4.72

%

4.72

%

–

4.69

%

The Company recorded gross loan balances of $810.2 million at March 31, 2017, compared with $724.2 million and $804.2 million at March 31, 2016 and December 31, 2016, respectively, an increase of $86.0 million and $6.0 million, respectively. The increase in gross loans compared to the same period a year ago and the prior period was driven by organic loan originations and is the result of investments in our SBA division and in our expanded Sacramento commercial banking group.

Average yield on interest bearing due from banks and investment securities during the quarter

2.17

%

2.35

%

(0.18

)

1.95

%

As of March 31, 2017, we maintained noninterest-bearing cash positions of $18.3 million and interest-bearing deposits in the amount of $42.7 million at the Federal Reserve Bank and correspondent banks. During the first quarter of 2017, we continued to deploy liquidity provided by the March 2016 branch acquisition and by strong organic deposit growth into loan originations and available for sale securities.

Available-for-sale investment securities totaled $181.5 million at March 31, 2017, compared with $174.3 million and $175.2 million at March 31, 2016 and December 31, 2016, respectively. Our available-for-sale investment portfolio provides us with a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations and wholesale loan purchases. During the first quarter of 2017 we purchased 18 securities with a par value of $23.7 million and weighted average yield of 2.52% and sold 14 securities with a par value of $13.5 million and weighted average yield of 2.06%. The sales activity on available for sale securities resulted in $66 thousand in net realized gains. During the same period, we received $4.3 million in proceeds from principal payments, calls and maturities within the available-for-sale investment securities portfolio. Average securities balances and weighted average tax equivalent yields for the quarters ended March 31, 2017 and 2016 were $211.1 million and 3.06% compared to $197.8 million and 3.42%, respectively.

At March 31, 2017, our net unrealized losses on available-for-sale investment securities were $891 thousand compared with net unrealized gains of $1.7 million and net unrealized losses of $1.3 million at March 31, 2016 and December 31, 2016, respectively. The decrease in net unrealized losses between December 31, 2016 and March 31, 2017 is primarily due to significant changes in market interest rates over the past three months.

TABLE 4

DEPOSITS BY TYPE – UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

% of

% of

Change

% of

2017

Total

2016

Total

Amount

%

2016

Total

Demand – noninterest bearing

$

270,412

27

%

$

212,758

23

%

$

57,654

27

%

$

270,398

27

%

Demand – interest bearing

407,784

41

392,325

42

15,459

4

%

405,569

40

Total demand

678,196

68

605,083

65

73,113

12

%

675,967

67

Savings

112,738

11

105,828

11

6,910

7

%

113,309

11

Total non-maturing deposits

790,934

79

710,911

76

80,023

11

%

789,276

78

Certificates of deposit

213,556

21

226,756

24

(13,200

)

(6

)

%

215,390

22

Total deposits

$

1,004,490

100

%

$

937,667

100

%

$

66,823

7

%

$

1,004,666

100

%

Average rate on interest bearing deposits during the quarter

0.39

%

0.48

%

(0.09

)

0.40

%

Average rate on all deposits during the quarter

0.29

%

0.37

%

(0.08

)

0.29

%

Total deposits at March 31, 2017, increased $66.8 million or 7% to $1.0 billion compared to March 31, 2016, and decreased $176 thousand or 0.07% annualized compared to December 31, 2016. Total non-maturing deposits increased $80.0 million or 11% compared to the same date a year ago and increased $1.7 million or 1% annualized compared to December 31, 2016. Certificates of deposit decreased $13.2 million or 6% compared to the same date a year ago and decreased $ 1.8 million or 3% annualized compared to December 31, 2016.

During the first quarter of 2016 the branch acquisition provided new deposits totaling $149.0 million and we called and redeemed $17.5 million of brokered certificates of deposit. At March 31, 2017, the deposits in the acquired branches totaled $153.0 million.

TABLE 5

WHOLESALE AND BROKERED DEPOSITS – UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

2017

2016

2016

CDARS / ICS reciprocal brokered deposits

$

55,565

$

61,601

$

65,212

Online listing service wholesale time deposits

47,429

55,986

48,900

Total wholesale and brokered deposits

$

102,994

$

117,587

$

114,112

In accordance with regulatory Call Report instructions, the Bank will file (or has filed) quarterly Call Reports which list brokered deposits of $55.6 million, $61.6 million and $65.2 million at March 31, 2017, March 31, 2016 and December 31, 2016, respectively.

INCOME STATEMENT OVERVIEW

TABLE 6

SUMMARY INCOME STATEMENT – UNAUDITED

(amounts in thousands, except per share data)

For The Three Months Ended

March 31,

Change

December 31,

Change

2017

2016

Amount

%

2016

Amount

%

Interest income

$

10,817

$

9,904

$

913

9

%

$

10,518

$

299

3

%

Interest expense

1,083

1,600

(517

)

(32

)

%

1,084

(1

)

0

%

Net interest income

9,734

8,304

1,430

17

%

9,434

300

3

%

Provision for loan and lease losses

200

—

200

100

%

—

200

100

%

Noninterest income

1,542

949

593

62

%

1,250

292

23

%

Noninterest expense:

Branch acquisition and balance sheet reconfiguration costs

—

2,795

(2,795

)

(100

)

%

—

—

—

%

Other noninterest expense

8,061

7,206

855

12

%

7,815

246

3

%

Income (loss) before provision for income taxes

3,015

(748

)

3,763

503

%

2,869

146

5

%

Deferred tax asset write-off

—

363

(363

)

100

%

—

—

—

%

Provision (benefit) for income taxes

763

(151

)

914

605

%

572

191

33

%

Net income (loss)

$

2,252

$

(960

)

$

3,212

335

%

$

2,297

(45

)

(2

)

%

Basic earnings (loss) per share

$

0.17

$

(0.07

)

$

0.24

343

%

$

0.17

$

—

—

%

Average basic shares

13,416

13,360

56

—

%

13,370

46

—

%

Diluted earnings (loss) per share

$

0.17

$

(0.07

)

$

0.24

343

%

$

0.17

$

—

—

%

Average diluted shares

13,521

13,403

118

1

%

13,476

45

—

%

Dividends declared per common share

$

0.03

$

0.03

$

—

—

%

$

0.03

$

—

—

%

First Quarter of 2017 Compared With First Quarter of 2016

Net income for the first quarter of 2017 increased $3.2 million compared to the first quarter of 2016. In the current quarter, net interest income was $1.4 million higher, noninterest income was $593 thousand higher, and noninterest expense was $1.9 million lower. These positive changes were offset by a provision for loan and lease losses that was $200 thousand higher and a provision for income tax that was $551 thousand higher.

Net Interest Income

Net interest income increased $1.4 million compared to the same period a year ago.

Interest income for the three months ended March 31, 2017 increased $913 thousand or 9% to $10.8 million. Interest and fees on loans increased $933 thousand due to increased average loan balances. Interest on interest-bearing deposits due from banks increased $39 thousand while interest on securities decreased $59 thousand.

Interest expense for the first quarter of 2017 decreased $517 thousand or 32% to $1.1 million. The net decrease was primarily caused by a $484 thousand decrease in interest on FHLB term debt. During the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated.

Noninterest Income

Noninterest income for the three months ended March 31, 2017 increased $593 thousand compared to the same period a year previous. Our branch and offsite ATM acquisition completed in the first quarter of 2016, enhanced point of sale and ATM fees by $174 thousand and enhanced service charges on deposit accounts by $55 thousand. During the current quarter we also recognized life insurance death benefit proceeds of $502 thousand.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2017 decreased $1.9 million compared to the same period a year previous. The primary components of the net decrease were:

During the three months ended March 31, 2017, the Company recorded a provision for income taxes of $763 thousand (25.31% of pretax income of $3.0 million). Life insurance death benefits of $502 thousand recorded during the current quarter are not subject to income tax and if excluded from pretax income the effective tax rate would have been 30.36%.

During the three months ended March 31, 2016, the Company recorded an income tax benefit of $151 thousand (20.19% of pretax operating losses of $748) The write-off of a $363 thousand deferred tax asset during the quarter resulted in a net expense of $212 thousand.

First Quarter of 2017 Compared With Fourth Quarter of 2016

Net income for the first quarter of 2017 decreased $45 thousand compared to the fourth quarter of 2016. In the current quarter, net interest income was $300 thousand higher and noninterest income was $292 thousand higher. These positive changes were offset by an increase in the provision for loan and lease losses of $200 thousand, noninterest expenses that were $246 thousand higher and a provision for income taxes that were $191 thousand higher.

Net Interest Income

Net interest income increased $300 thousand over the prior quarter.

Interest income for the three months ended March 31, 2017 increased $299 thousand or 12% annualized to $10.8 million compared to the prior quarter. Interest and fees on loans increased $203 thousand due to increased average balances and increased yields. Interest on interest bearing deposits due from banks increased $4 thousand due to increased yields. Interest on investment securities increased $92 thousand due to increased average balances and increased yields.

Interest expense for the three months ended March 31, 2017 decreased $1 thousand or 4% annualized to $1.1 million compared to the prior quarter. Average total deposits for the first quarter of 2017 increased $22.6 million from the fourth quarter of 2016. The growth was in low cost core deposits.

Noninterest Income

Noninterest income for the three months ended March 31, 2017 increased $292 thousand compared to the prior quarter. During the current quarter we recognized income from life insurance death benefit proceeds of $502 thousand. Dividends on Federal Home Loan Bank of San Francisco stock decreased $250 thousand primarily due to a special dividend recorded in the prior quarter.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2017 increased $246 thousand compared to the prior quarter. The primary components of the net increase were:

Salaries and related benefits costs increased $269 thousand

Employee vacation accrual costs increased $236 thousand

Deferred loan origination costs decreased $116 thousand

Professional service fees decreased $88 thousand

Data processing fees decreased $126 thousand

Advertising costs decreased $77 thousand

Income Tax Provision

During the three months ended March 31, 2017, we recorded a provision for income taxes of $763 thousand (25.31% of pretax income) compared with a provision for income taxes of $572 thousand (19.94% of pretax income) for the prior quarter. Our income tax provision is composed of two main components: 1) federal and state income taxes based on our income and 2) amortization of our investments in affordable housing partnerships. The increase in the effective tax rate during the three months ended March 31, 2017 when compared to the prior quarter is due to an adjustment we made to the amortization of our investments in affordable housing partnerships during the prior quarter.

Earnings Per Share

Diluted earnings per share were $0.17 for the three months ended March 31, 2017 compared with diluted loss per share of $0.07 for the same period a year ago, and diluted earnings of $0.17 for the prior period. The number of shares outstanding during these periods has not changed significantly. Changes in earnings per share are the result of changes in net income.

TABLE 7

NET INTEREST MARGIN – UNAUDITED

(amounts in thousands)

For The Three Months Ended

March 31, 2017

March 31, 2016

December 31, 2016

Average

Yield /

Average

Yield /

Average

Yield /

(Amounts in thousands)

Balance

Interest(1)

Rate

Balance

Interest(1)

Rate

Balance

Interest(1)

Rate

Interest-earning assets:

Net loans (2)

$

806,793

$

9,384

4.72

%

$

720,795

$

8,451

4.72

%

$

778,458

$

9,181

4.69

%

Taxable securities

137,582

789

2.33

%

119,917

784

2.63

%

124,881

705

2.25

%

Tax-exempt securities

73,524

530

2.92

%

77,852

594

3.07

%

72,288

522

2.87

%

Interest-bearing deposits in other banks

57,140

114

0.81

%

51,254

75

0.59

%

75,760

110

0.58

%

Average interest-earning assets

1,075,039

10,817

4.08

%

969,818

9,904

4.11

%

1,051,387

10,518

3.98

%

Cash and due from banks

16,873

12,301

16,953

Premises and equipment, net

16,165

12,384

16,331

Other assets

40,228

39,700

41,363

Average total assets

$

1,148,305

$

1,034,203

$

1,126,034

Interest-bearing liabilities:

Interest-bearing demand

$

420,416

148

0.14

%

$

323,771

122

0.15

%

$

398,749

135

0.13

%

Savings deposits

113,647

47

0.17

%

96,027

45

0.19

%

111,755

45

0.16

%

Certificates of deposit

215,202

529

1.00

%

221,836

597

1.08

%

217,463

543

0.99

%

Net term debt

18,598

293

6.39

%

91,444

782

3.44

%

18,975

298

6.25

%

Junior subordinated debentures

10,310

66

2.60

%

10,310

54

2.11

%

10,310

63

2.43

%

Average interest-bearing liabilities

778,173

1,083

0.56

%

743,388

1,600

0.87

%

757,252

1,084

0.57

%

Noninterest-bearing demand

262,881

182,539

261,600

Other liabilities

12,431

16,969

12,856

Shareholders’ equity

94,820

91,307

94,326

Average liabilities and shareholders’ equity

$

1,148,305

$

1,034,203

$

1,126,034

Net interest income and net interest margin (4)

$

9,734

3.67

%

$

8,304

3.44

%

$

9,434

3.57

%

Tax equivalent net interest margin (3)

3.78

%

3.57

%

3.67

%

(1) Interest income on loans is net of deferred fees and costs of approximately $197 thousand, $315 thousand, and $139 thousand for the three months ended March 31, 2017, and 2016 and December 31, 2016, respectively.

(2) Net loans includes average nonaccrual loans of $10.9 million, $10.4 million and $10.0 million for the three months ended March 31, 2017 and 2016 and December 31, 2016 respectively.

(3) Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $273 thousand, $306 thousand and $269 thousand for the three months ended March 31, 2017 and 2016 and December 31, 2016, respectively.

(4) Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

The current quarter net interest margin increased ten basis points to 3.67% as compared to the prior quarter due to increased yields on average interest earning assets. Increases in the average balances of the loan and investment portfolios were funded by increased average balances in low cost deposits and decreased average balances in interest-bearing deposits in other banks.

The net interest margin was 3.67% for the current quarter compared to 3.44% for the same period a year ago. The 3 basis point decrease in yield on average earning assets was offset by a 26 basis point decrease in interest expense to fund average earning assets. The increase in interest income compared to the same quarter in the prior year is due to increased volume in the loan and investment portfolios. The decrease in interest expense resulted from our acquisition of low cost core deposits and our ability to restructure our balance sheet.

Average deposit balances increased $22.6 million and $188.0 million compared to the prior quarter and the same period a year ago respectively. The increase in average deposit balances compared to the prior quarter was organic growth in core deposits. The increase in average deposit balances compared to the same period a year ago results from both the March 2016 branch acquisition and strong organic growth in core deposits. Our overall cost of total deposits decreased to 0.29% for the quarter ended March 31, 2017 from 0.37% for the same period a year ago and were unchanged from 0.29% for the prior quarter.

We realized net loan charge-offs of $103 thousand in the current quarter compared with net loan loss charge-offs of $305 thousand in the prior quarter and net loan recoveries of $315 thousand for the same period a year ago. Charge-offs during the first quarter of 2017 of $447 thousand were primarily associated with purchased consumer loans and residential real estate loans.

We continue to monitor credit quality, and adjust the ALLL to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan and lease portfolio. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $200 thousand provision for loan and lease losses during the quarter ended March 31, 2017. There were no provisions for loan and lease losses during the previous eight consecutive quarters. Our ALLL as a percentage of gross loans was 1.44% as of March 31, 2017 compared to 1.59% as of March 31, 2016 and 1.44% as of December 31, 2016. Based on the Bank’s ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, management believes the Company’s ALLL is adequate at March 31, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

At March 31, 2017, the recorded investment in loans classified as impaired totaled $16.8 million, with a corresponding specific reserve of $1.3 million compared to impaired loans of $19.1 million with a corresponding specific reserve of $1.1 million at March 31, 2016 and impaired loans of $18.8 million, with a corresponding specific reserve of $1.5 million at December 31, 2016. The decrease in loans classified as impaired and the decrease in the corresponding specific reserve compared to the prior quarter is primarily due to two commercial real estate relationships and one residential real estate relationship.

TABLE 9

PERIOD END TROUBLED DEBT RESTRUCTURINGS – UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

At September 30,

At June 30,

At March 31,

2017

2016

2016

2016

2016

Nonaccrual

$

4,570

$

4,995

$

3,795

$

3,785

$

4,516

Accruing

6,760

7,071

7,360

7,460

6,916

Total troubled debt restructurings

$

11,330

$

12,066

$

11,155

$

11,245

$

11,432

Percentage of total gross loans

1.40

%

1.50

%

1.43

%

1.49

%

1.58

%

Loans are reported as a troubled debt restructuring when we grant a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Specific reserves on non-collateral dependent restructured loans are measured by calculating the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement. These specific reserves are recognized as a specific component to be provided for in the ALLL.

There were no new troubled debt restructurings during the three months ended March 31, 2017. As of March 31, 2017, we had 118 restructured loans that qualified as troubled debt restructurings, of which 110 were performing according to their restructured terms.

TABLE 10

NONPERFORMING ASSETS – UNAUDITED

(amounts in thousands)

At March 31,

At December 31,

At September 30,

At June 30,

At March 31,

2017

2016

2016

2016

2016

Total nonaccrual loans

$

9,997

$

11,386

$

10,090

$

10,911

$

11,698

90 days past due and still accruing

—

—

—

10

—

Total nonperforming loans

9,997

11,386

10,090

10,921

11,698

Other real estate owned

814

759

793

765

1,011

Total nonperforming assets

$

10,811

$

12,145

$

10,883

$

11,686

$

12,709

Nonperforming loans to gross loans

1.23

%

1.42

%

1.30

%

1.45

%

1.62

%

Nonperforming assets to total assets

0.95

%

1.06

%

0.98

%

1.09

%

1.18

%

The decrease in nonaccrual loans during the first quarter of 2017 was associated with loans paid off for one commercial real estate relationship, one residential real estate relationship and one consumer relationship.

The March 31, 2017 OREO balance consists of seven properties, of which four are 1-4 family residential real estate properties in the amount of $121 thousand, two are nonfarm nonresidential properties in the amount of $581 thousand and one is an undeveloped commercial property in the amount of $112 thousand.

TABLE 11

UNAUDITED CONSOLIDATED

BALANCE SHEET

(amounts in thousands, except per share data)

At March 31,

At March 31,

Change

At December 31,

2017

2016

$

%

2016

Assets:

Cash and due from banks

$

18,315

$

14,969

$

3,346

22

%

$

16,419

Interest-bearing deposits in other banks

42,744

70,781

(28,037

)

(40

)

%

51,988

Total cash and cash equivalents

61,059

85,750

(24,691

)

(29

)

%

68,407

Securities available-for-sale, at fair value

181,534

174,251

7,283

4

%

175,174

Securities held-to-maturity, at amortized cost

31,257

35,357

(4,100

)

(12

)

%

31,187

Loans, net of deferred fees and costs

811,640

725,228

86,412

12

%

805,535

Allowance for loan and lease losses

(11,641

)

(11,495

)

(146

)

1

%

(11,544

)

Net loans

799,999

713,733

86,266

12

%

793,991

Premises and equipment, net

15,903

15,494

409

3

%

16,226

Other real estate owned

814

1,011

(197

)

(19

)

%

759

Life insurance

21,494

22,642

(1,148

)

(5

)

%

23,098

Deferred taxes

9,363

8,389

974

12

%

9,542

Goodwill and core deposit intangible, net

2,196

2,469

(273

)

(11

)

%

2,252

Other assets

19,132

17,987

1,145

6

%

20,356

Total assets

$

1,142,751

$

1,077,083

$

65,668

6

%

$

1,140,992

Liabilities and shareholders’ equity:

Demand – noninterest bearing

$

270,412

$

212,758

$

57,654

27

%

$

270,398

Demand – interest bearing

407,784

392,325

15,459

4

%

405,569

Savings

112,738

105,828

6,910

7

%

113,309

Certificates of deposit

213,556

226,756

(13,200

)

(6

)

%

215,390

Total deposits

1,004,490

937,667

66,823

7

%

1,004,666

Term debt

18,667

19,839

(1,172

)

(6

)

%

18,917

Unamortized debt issuance costs

(173

)

(213

)

40

(19

)

%

(184

)

Net term debt

18,494

19,626

(1,132

)

(6

)

%

18,733

Junior subordinated debentures

10,310

10,310

—

0

%

10,310

Other liabilities

12,994

18,762

(5,768

)

(31

)

%

13,177

Total liabilities

1,046,288

986,365

59,923

6

%

1,046,886

Shareholders’ equity:

Common stock

24,800

24,325

475

2

%

24,547

Retained earnings

72,066

65,201

6,865

11

%

70,218

Accumulated other comprehensive (loss) income, net of tax

(403

)

1,192

(1,595

)

(134

)

%

(659

)

Total shareholders’ equity

96,463

90,718

5,745

6

%

94,106

Total liabilities and shareholders’ equity

$

1,142,751

$

1,077,083

$

65,668

6

%

$

1,140,992

Total interest earning assets

$

1,068,066

$

1,002,492

$

65,574

7

%

$

1,065,228

Shares outstanding

13,517

13,442

13,440

Tangible book value per share

$

6.97

$

6.57

$

6.83

TABLE 12

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

For The Three Months Ended

March 31,

Change

December 31,

2017

2016

$

%

2016

Interest income:

Interest and fees on loans

$

9,384

$

8,451

$

933

11

%

$

9,181

Interest on securities

789

784

5

1

%

705

Interest on tax-exempt securities

530

594

(64

)

(11

)

%

522

Interest on deposits in other banks

114

75

39

52

%

110

Total interest income

10,817

9,904

913

9

%

10,518

Interest expense:

Interest on demand deposits

148

122

26

21

%

135

Interest on savings deposits

47

45

2

4

%

45

Interest on certificates of deposit

529

597

(68

)

(11

)

%

543

Interest on term debt

293

782

(489

)

(63

)

%

298

Interest on other borrowings

66

54

12

22

%

63

Total interest expense

1,083

1,600

(517

)

(32

)

%

1,084

Net interest income

9,734

8,304

1,430

17

%

9,434

Provision for loan and lease losses

200

—

200

100

%

—

Net interest income after provision for loan and lease losses

9,534

8,304

1,230

15

%

9,434

Noninterest income:

Service charges on deposit accounts

127

72

55

76

%

120

ATM and point of sale

266

92

174

189

%

281

Payroll and benefit processing fees

191

160

31

19

%

161

Life insurance

646

156

490

314

%

152

Gain on investment securities, net

66

94

(28

)

(30

)

%

52

Federal Home Loan Bank of San Francisco dividends

103

90

13

14

%

353

Other income

143

285

(142

)

(50

)

%

131

Total noninterest income

1,542

949

593

62

%

1,250

TABLE 12 – CONTINUED

UNAUDITED

INCOME STATEMENT

(amounts in thousands, except per share data)

For The Three Months Ended

March 31,

Change

December 31,

2017

2016

$

%

2016

Noninterest expense:

Salaries and related benefits

4,858

4,229

629

15

%

4,237

Occupancy and equipment

1,048

789

259

33

%

1,022

Federal Deposit Insurance Corporation insurance premium

48

156

(108

)

(69

)

%

102

Data processing fees

407

304

103

34

%

533

Professional service fees

393

436

(43

)

(10

)

%

481

Telecommunications

211

147

64

44

%

206

Branch acquisition costs

—

412

(412

)

(100

)

%

—

Loss on cancellation of interest rate swap

—

2,325

(2,325

)

(100

)

%

—

Other expenses

1,096

1,203

(107

)

(9

)

%

1,234

Total noninterest expense

8,061

10,001

(1,940

)

(19

)

%

7,815

Income (loss) before provision for income (loss) taxes

3,015

(748

)

3,763

(503

)

%

2,869

Deferred tax asset write-off

—

363

(363

)

(100

)

%

—

Provision (benefit) for income taxes

763

(151

)

914

(605

)

%

572

Net income (loss)

$

2,252

$

(960

)

$

3,212

(335

)

%

$

2,297

Basic earnings (loss) per share

$

0.17

$

(0.07

)

$

0.24

(343

)

%

$

0.17

Average basic shares

13,416

13,360

56

—

%

13,370

Diluted earnings (loss) per share

$

0.17

$

(0.07

)

$

0.24

(343

)

%

$

0.17

Average diluted shares

13,521

13,403

118

1

%

13,476

TABLE 13

UNAUDITED CONDENSED CONSOLIDATED

YEAR TO DATE AVERAGE BALANCE SHEETS

(amounts in thousands)

For the Three Months Ended

For the Twelve Months Ended

March 31,

March 31,

December 31,

December 31,

December 31,

2017

2016

2016

2015

2014

Earning assets:

Loans

$

806,793

$

720,795

$

752,938

$

699,227

$

625,166

Taxable securities

137,582

119,917

120,884

120,897

147,916

Tax exempt securities

73,524

77,852

75,303

77,089

83,973

Interest-bearing deposits in other banks

57,140

51,254

58,668

30,323

56,465

Average earning assets

1,075,039

969,818

1,007,793

927,536

913,520

Cash and due from banks

16,873

12,301

15,831

11,220

11,246

Premises and equipment, net

16,165

12,384

15,078

11,552

12,105

Other assets

40,228

39,700

41,048

42,423

36,936

Average total assets

$

1,148,305

$

1,034,203

$

1,079,750

$

992,731

$

973,807

Liabilities and shareholders’ equity:

Demand – noninterest bearing

$

262,881

$

182,539

$

226,368

$

156,578

$

139,792

Demand – interest bearing

420,416

323,771

374,170

283,105

272,383

Savings

113,647

96,027

104,771

92,659

91,108

Certificates of deposit

215,202

221,836

221,074

238,626

259,445

Total deposits

1,012,146

824,173

926,383

770,968

762,728

Term debt

18,598

91,444

37,286

88,874

77,534

Junior subordinated debentures

10,310

10,310

10,310

10,310

15,239

Other liabilities

12,431

16,969

13,217

16,588

15,934

Average total liabilities

1,053,485

942,896

987,196

886,740

871,435

Shareholders’ equity

94,820

91,307

92,554

105,991

102,372

Average liabilities & shareholders’ equity

$

1,148,305

$

1,034,203

$

1,079,750

$

992,731

$

973,807

TABLE 14

UNAUDITED CONDENSED CONSOLIDATED

QUARTERLY AVERAGE BALANCE SHEETS

(amounts in thousands)

For The Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2017

2016

2016

2016

2016

Earning assets:

Loans

$

806,793

$

778,458

$

769,354

$

742,684

$

720,795

Taxable securities

137,582

124,881

114,578

124,183

119,917

Tax exempt securities

73,524

72,288

73,952

77,168

77,852

Interest-bearing deposits in other banks

57,140

75,760

61,346

46,097

51,254

Average earning assets

1,075,039

1,051,387

1,019,230

990,132

969,818

Cash and due from banks

16,873

16,953

17,018

17,028

12,301

Premises and equipment, net

16,165

16,331

15,941

15,632

12,384

Other assets

40,228

41,363

41,729

41,394

39,700

Average total assets

$

1,148,305

$

1,126,034

$

1,093,918

$

1,064,186

$

1,034,203

Liabilities and shareholders’ equity:

Demand – noninterest bearing

$

262,881

$

261,600

$

240,418

$

220,377

$

182,539

Demand – interest bearing

420,416

398,749

390,895

382,811

323,771

Savings

113,647

111,755

107,210

103,990

96,027

Certificates of deposit

215,202

217,463

221,078

223,958

221,836

Total deposits

1,012,146

989,567

959,601

931,136

824,173

Term debt

18,598

18,975

19,610

19,510

91,444

Junior subordinated debentures

10,310

10,310

10,310

10,310

10,310

Other liabilities

12,431

12,856

11,159

11,913

16,969

Average total liabilities

1,053,485

1,031,708

1,000,680

972,869

942,896

Shareholders’ equity

94,820

94,326

93,238

91,317

91,307

Average liabilities & shareholders’ equity

$

1,148,305

$

1,126,034

$

1,093,918

$

1,064,186

$

1,034,203

About Bank of Commerce Holdings

Bank of Commerce Holdings is a bank holding company headquartered in Redding, California and is the parent company for Redding Bank of Commerce which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce). The Bank is an FDIC-insured California banking corporation providing community banking and financial services through nine offices located in northern California. The Bank opened on October 22, 1982. The Company’s common stock is listed on the NASDAQ Global Market and trades under the symbol “BOCH”.